Annual Audit Letter 2007-08

1. HEALTHCARE Annual Audit Letter 2007-08 The Shrewsbury and Telford Hospital NHS Trust 28 August 2008 AUDIT

2. Content The contacts at KPMG in connection with this report are: Andrew Bostock DirectorKPMG LLP (UK)Tel: 0121 232 3308 andrew.bostock@kpmg.co.uk Helen Dempsey Senior ManagerKPMG LLP (UK)Tel:0121 232 3901 helen.dempsey@kpmg.couk Andrew Bourne ManagerKPMG LLP (UK)Tel:0121 232 3694 andrew.bourne@kpmg.couk Simon Stanyer Assistant ManagerKPMG LLP (UK)Tel:0121 232 3694 simon.stanyer@kpmg.co.uk This report is addressed to the Trust and has been prepared for the sole use of the Trust. We take no responsibility to any member of staff acting in their individual capacities, or to third parties. The Audit Commission has issued a document entitled Statement of Responsibilities of Auditors and Audited Bodies. This summarises where the responsibilities of auditors begin and end and what is expected from the audited body. We draw your attention to this document. External auditors do not act as a substitute for the audited body’s own responsibility for putting in place proper arrangements to ensure that public business is conducted in accordance with the law and proper standards, and that public money is safeguarded and properly accounted for, and used economically, efficiently and effectively. If you have any concerns or are dissatisfied with any part of KPMG’s work, in the first instance you should contact Andrew Bostock who is the engagement lead to the Trust or Trevor Rees, the national contact partner for all of KPMG’s work with the Audit CommissionAfter this, if you still dissatisfied with how your complaint has been handled you can access the Audit Commission’s complaints procedure. You can contact the Complaints Unit by: Phone: 0844 798 3131 [Local rate call] Email: complaints@audit-commission.gov.uk Website: www.audit-commission.gov.uk/aboutus/contactus Textphone (minicom): 020 7630 0421Post:Pauline Painter, Complaints Unit Manager, Audit Commission Westward House, Lime Kiln Close, Stoke Gifford, Bristol, BS34 8SR.

3. Section OneExecutive Summary Purpose This Annual Audit Letter (the letter) summarises the key issues arising from the work that we have carried out during 2007-08 at The Shrewsbury and Telford Hospital NHS Trust. Although this letter is addressed to the directors of the Trust, it is also intended to communicate those key issues to key external stakeholders, including members of the public. The letter will be published on the Audit Commission website at www.audit-commission.gov.uk. It is the responsibility of the Trust to publish the letter on the Trust website at www.sath.nhs.uk. A summary of our key recommendations drawn from our reports is summarised in Appendix 1. We have reported all the issues in this letter to you throughout the year and a list of all reports we have issued is provided in Appendix 2. Scope of our audit The statutory responsibilities and powers of appointed auditors are set out in the Audit Commission Act 1998. Our main responsibility is to carry out an audit that meets the requirements of the Audit Commission’s Code of Audit Practice (the Code). Under the Code we are required to review and report on your: • use of resources - that is whether you have made proper arrangements for securing economy, efficiency and effectiveness (‘value for money’) in your use of resources. Our work in this area is summarised in Section 2 of this letter • accounts – that is the Financial Statements and the Statement on Internal Control. Our opinion highlights that the published accounts present a true and fair view of the Trust’s financial affairs and that the processes and procedures adopted in producing the accounts were adequate. This work is summarised in Section 3. Key Messages The key areas which we wish to draw your attention are as follows; • We received a complete set of draft accounts on 1 May 2008, in accordance with the national deadline. The draft accounts we received were of an overall satisfactory standard with very few presentational errors identified. The quality of the Trust files and working papers were of a good overall standard. The responsiveness of the Trust’s staff to audit queries was good with most audit queries being resolved on a timely basis. This contributed to an efficient audit which met the deadlines set by the Department of Health. • We also identified a number of accounting standards issues that the Trust should review during 2008/09 with the adoption of IFRS in the NHS and to be consistent with other NHS bodies. Future Issues The Trust continues to face a number of challenging financial pressures, including the delivery of a Cost Improvement Programme of £6.9m, in order that the budgeted surplus of £4.1m can be met for 2008-09.Increased non pay costs on energy and other consumables are contributing to these financial pressures. The Trust cumulative financial performance for the first quarter of 2008-09 is a deficit of £0.326m against a planned surplus of £0.842m. The Trust must, not only control the financial impact of these costs pressures, but also the ongoing delivery of challenging CIP targets to ensure that the budgeted year end surplus of £4.1m is met. Other ongoing financial challenges for the Trust during the year include the implementation of IFRS across the NHS in 2009/10 with 2008/09 comparatives being restated in the Summer of 2009. In addition, there is continued pressure on NHS organisations for a more streamlined year end process. As a result, the accounts submission date for the 2008/09 annual accounts has been moved forward to 23rd April 2009 with a deadline for audit opinions to be issued of 12th June 2009. Finally, the Trust must consider the capacity and capability of the Finance Directorate to meet these challenges whilst also ensuring that the Directorate is fit to face the ongoing challenges associated with the future Foundation Trust application. In addition to the financial challenges facing the Trust, there is continued pressure to meet national targets i.e. 18 week waits and hospital acquired infection reduction targets. There is significant scrutiny on performance against these targets from regulatory bodies and the Trust must ensure that, in order to progress with its Foundation Trust application, progress against the national targets is being met along with the ongoing achievement of financial plans and targets.

4. Section TwoUse of resources • The main elements of our use of resources work are: • Auditor’s Local Evaluation (ALE) - we assess how well you manage and use financial resources by providing scored judgements on arrangements in five areas (Financial Reporting, Financial Management, Financial Standing, Internal Control, and Value For Money). We also follow up prior year recommendations to support this conclusion. • Value for money conclusion –we issue a conclusion on whether we are satisfied that you have put in place proper arrangements for securing economy, efficiency and effectiveness in your use of resources. In part this is based on the ALE assessment and it is also based on the local reviews carried out. • Specific risk based work - we have not completed any risk based work to support our use of resources opinion. • The key findings from this work are summarised below. • All recommendations arising from this work have already been communicated to you. A summary of the most significant recommendations, along with the Trust’s management’s response, is provided at Appendix 1. • The Audit Commission is a signatory to the concordat between bodies inspecting, regulating and auditing healthcare. All recommendations from our use of resources work are loaded onto the concordat website at www.concordat.org.uk and an annual update of progress against these plans will be provided to the Audit Committee. • Local work • At the request of the Trust, we completed a review of the Trust’s draft Integrated Business Plan (IBP). We reviewed the key areas of the IBP and suggested a number of enhancements which could be made to ensure that the Trust’s vision, values, strategy and executive summary section set out a clear and compelling case for the Trust to be granted Foundation Status. Our finding were fed back to the Foundation Trust Project Director and the Chief Executive in March 2008.

5. Section ThreeFinancial statements • Audit opinion • We issued an unqualified opinion on your accounts on 20th June 2008. This means that we believe the accounts give a true and fair view of the financial affairs of the Trust and of the income and expenditure recorded during the year. We have also confirmed that you have complied with your regularity requirements and with with Department of Health requirements in the preparation of your Statement on Internal Control (SIC) and that we are not aware of any inconsistencies with the information that you have recorded within this statement and our other work; • Before we give our opinion on the accounts, we are required to report to your Audit Committee any significant matters identified. We did this in our report of 30 May 2008 and the key issues are summarised here. • Accounts production and/or adjustments to the accounts • We received a complete set of draft accounts on 1 May 2008, in accordance with the national deadline. The draft accounts we received were of an overall satisfactory standard with very few presentational errors identified. • The quality of the Trust files and working papers were of a good overall standard. The one main weakness was that the quality of the analytical review could have been improved with more detail provided on the key analytical movements between prior year comparators and the accounts and more corroborative evidence provided. • The responsiveness of the Trust’s staff to audit queries was good with most audit queries being resolved on a timely basis. This contributed to an efficient audit which met the deadlines set by the Department of Health. • Financial Standing • NHS bodies are given financial targets every year. One of these, the breakeven duty, is statutory, which means you must achieve it. The others are administrative, which means you should achieve them. Your performance against the targets is outlined below.

6. Section ThreeFinancial statements • Challenges for 2008-09 • Cost Improvement Programme delivery • The Trust Board approved the annual budget on 27th March 2008 for the 2008/09 financial year with a forecast surplus of £4.1m which is the amount required to repay the principal on the £12.299m working capital loan received in 2006/07. • The annual budget is based upon the achievement of a planned Cost Improvement Programme (CIP) of £6.9m. The CIP contains a number of schemes which are rated as a red risk to achievement. This indicates that there is a high risk that the CIP target will not be delivered by the end of the financial year. The Trust Board must ensure that fully costed plans are identified for those schemes highlighted as a red risk in order that they are achieved by the end of the year or, compensating CIP schemes identified. • As at 30 June 2008, (the latest figures available at the time of drafting this letter) the Trust has delivered CIPs of £0.892m against a year to date target of £1.285m. This has resulted in an under achievement of £0.393m against the three month CIP target. The Trust must ensure that Directorates clearly identify action plans where they are under achieving against their CIP targets, and provide assurances to the Trust Board that their CIPs will be delivered in full by the end of the year. In addition, the Trust Board must continue to monitor the delivery of the CIPs and the action plans developed by Directorates where schemes are slipping. • In year costs pressures • The cumulative financial position for the first three month period of the year is a deficit of £0.326m against a planned surplus of £0.842m. Although income for the period is £2.57m ahead of plan, both the pay and non pay budgets have reported adverse variances of £2.3m and £1.4m respectively. This has resulted in a total adverse variance to plan of £1.2m for the period. The cost pressure on the pay budget is primarily due to high agency staff costs and the non pay budget now includes the impact of digital hearing aids being treated as revenue rather than grouped assets in accordance with the external guidance issued in March 2008. • The financial performance to date is concerning as cost pressures continue to rise (e.g. increased energy and food costs). Whilst the Trust is over performing against planned activity levels, it is concerning that cost pressures are growing at a rate in excess of the additional activity. The challenge facing the Trust will be, not only controlling the financial impact of these costs pressures, but also the ongoing delivery of challenging CIP targets to ensure that the Trust meets its budgeted year end surplus of £4.1m. • IFRS, early close down process, and the Foundation Trust process • Other ongoing financial challenges for the Trust during 2008-09 include the implementation of IFRS across the NHS in 2009-10 with 2008-09 comparatives being restated in the Summer of 2009. In addition, there is continued pressure on NHS organisations for a more streamlined year end process. As a result, the accounts submission date for the 2008/09 annual accounts has been moved forward to 23rd April 2009 with a deadline for audit opinions to be issued of 12th June 2009. Finally, the Trust must consider the capacity and capability of the Finance Directorate to meet these challenges whilst also ensuring that the Directorate is fit to face the ongoing challenges associated with the future Foundation Trust application. • In addition to the financial challenges facing the Trust, there is continued pressure to meet national targets i.e. 18 week waits and hospital acquired infection reduction targets. There is significant scrutiny on performance against these targets from regulatory bodies and the Trust must ensure that, in order to progress with its Foundation Trust application, progress against the national targets is being met along with the ongoing achievement of financial plans and targets.

7. AppendicesAppendix 1: Key recommendations This appendix summarises the main recommendations i.e. high priority, that we have identified during 2007-08, along with your response to them.

8. AppendicesAppendix 2: Reports issued